Cultivating Sound Judgement in a Complex World

1. Laying the groundwork – the nature of accounting estimates and the concept of estimation uncertainty
2. Scalability – applying to a range from simple to complex estimates
3. Separate assessment of inherent risk and control risk - describing the “spectrum of inherent risk” and the consideration of testing controls
4. Enhanced risk assessment – more specific and addressed to more complex situations
5. Responses to the assessed risks of material misstatement – emphasizing responsiveness
6. Reference to relevant requirements of other audit standard sections
7. Exercise of professional skepticism – importance increases with greater uncertainty and complexity
8. Evaluation of the estimates – reasonability in the context of the reporting framework
9. Appendixes – expands on explanations of inherent risk factors, communications, and amendments to SAS’s.

1. Interest Rate Benchmark Reform- Amendments to IFRS 9, IAS 39 and IFRS 7, issued September 26, 2019, modifies “some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the IBOR reform. In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties.” Effective for annual reporting periods beginning in 2020 with early adoption permitted.

1. International Standards: 2019 Global Status Report, published October 14, 2019, “detailing how and where international accountancy standards—which focus on audit and assurance, ethics, education, and private and public sector accounting—are being adopted and implemented globally. The report, which includes data from the more than 170 professional accountancy organizations that comprise IFAC’s membership, shows strong and sustained support for both the adoption and implementation of international standards, especially in areas where IFAC member organizations are involved in the process from start to finish.”
2. Audit Quality in a Multidisciplinary Firm, research report issued September 25, 2019 in partnership with CA ANZ and ACCA, shows “that the multidisciplinary model is one of the best mechanisms to develop the skills, expertise and consistency needed for quality audits.
3. International Public Sector Accounting Standards Board (IPSASB) - Exposure Draft 69 - Public Sector Financial Instruments, Amendments to IPSAS 41, Financial Instruments, issued August 27, 2019, proposes to “augment existing guidance in IPSAS 41, Financial Instruments, and improves that Standard’s requirements by introducing guidance on: Monetary gold; Currency in circulation; IMF quota subscriptions; and Special Drawing Rights.” The comment period ends on December 31, 2019.

1. Social and Environmental Value Creation, research report issued September 23, 2019 with CFA Institute, “examines the role of business in environmental, social and governance (ESG) issues which are under increasing focus from investors and society more widely. It assesses the current state of corporate disclosures on key social and environmental issues in different regions around the world and outlines five disclosure and decision-making approaches that can support business to create inclusive and sustainable value for society over the long-term.”

1. Driving Alignment in Climate-related Reporting, report published by the Corporate Reporting Dialogue on September 24, 2019, “maps the Better Alignment Project participants’ standards and frameworks against the seven principles for effective disclosure, the 11 recommended disclosures and 50 illustrative example metrics detailed in the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. It also documents the commonalities and differences between the Dialogue participants within the parameters of the TCFD recommendations’ example metrics... The mapping showed strong alignment between the participants’ frameworks and standards and the TCFD recommendations.”

1. Regional Risks for Doing Business 2019, survey report of 13,000 business leaders worldwide, issued October 1, 2019, stating that the top leading risk to doing business at a global scale is fiscal crises, followed by cyberattacks, un/under-employment, energy price shock, failure of national governance, and profound social instability.

1. Understanding citizens’ views on the regulation of corporate reporting, corporate governance and audit, research report issued October 2, 2019, “supports the Financial Reporting Council (FRC) taking firmer action to hold companies to account. Participants in a series of ‘citizens’ juries’ believed the FRC should have more "power" and "teeth" to hold companies to account, but any increase in regulation should not stifle companies’ ability to operate and flourish.” 
2. International Standard on Auditing (ISA UK 570) – Going Concern (Revised), issued September 30, 2019, “follows concerns about the quality and rigour of audit and increases the work auditors are required to do when assessing whether an entity is a going concern. It means UK auditors will follow significantly stronger requirements than those required by current international standards.” Effective for audits commencing on or after December 31, 2019, with early adoption permitted.
3. Disclosures on the sources and uses of cash, project report issued September 25, 2019, “considers how companies can answer investors’ questions about how a company generates cash and how it intends to use that cash. It provides practical guidance on how companies can give more information and context around its cash disclosures, beyond those in the cash flow statement including business model disclosures, capital allocation frameworks, reverse factoring arrangements and many others.”
4. Letter to firms - EU exit preparations, issued September 19, 2019, directed to audit committee chairs and finance directors to assist with preparations for the United Kingdom’s exit from the European Union.

1. Auditing Standards Board – Exposure Draft- Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes from SAS No. 134, issued August 28, 2019, to extend auditor reporting changes to reports relating to special purpose frameworks, single financial statements, specific elements, accounts or items of a financial statement, and summary financial statements. The comment period ends October 28, 2019.
2. Auditing Standards Board Exposure Draft - Statement on Auditing Standards, Auditing Accounting Estimates and Related Disclosures, issued August 22, 2019. See first article in this issue for details.
3. Materiality Considerations for Attestation Engagements Involving Aspects of Subject Matters That Cannot Be Quantitatively Measured, Discussion Paper issued August 15, 2019. See first article in this issue for details.

1. Exposure Draft (Revised)– Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent), issued September 12, 2019, “to improve guidance used to determine whether debt should be classified as a current or noncurrent liability in a classified balance sheet.” The comment period ends October 28, 2019.
2. Exposure Draft – Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, issued September 5, 2019, “would provide temporary optional guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting.” The comment period ends October 7, 2019.

1. Exposure Draft – Replacement of Interbank Offered Rates, issued September 26, 2019, “ to assist state and local governments in the transition away from existing interbank offered rates (IBORs) to other reference rates.” The comment period ends November 27, 2019.